Why gold may not turn costlier anytime soon

March 21, 2015 10:30 AM

The short-term range for gold prices could be between $1145 and $1210. In the domestic markets, this could translate to Rs 25500-Rs 26800 depending on the rupee being in a range of 62.00-63.00 to a dollar. Here's why:

Gold has risen for over a decade thanks to the Quantitative Easing (QE) and the economic uncertainty surrounding the US economy. However, the strengthening of the dollar, a trend bolstered by the end of QE and the apparent strengthening of the US economy have forced gold prices downward. But the bottom could come at some point.

Unlike other instruments, there will always be strong and consistent demand for the metal as jewellery, especially because nations like China and India have rapidly growing middle and upper classes. Some industrial demand is also being rumored from Apple, which could be buying huge quantities for its new watches.

Meanwhile, central banks across the world maintain large holdings of the metal and the idea that gold is a hedge against economic and geo-political catastrophe isn't going away anytime soon.

Gold ETF data indicates that much of the short-term money that was pumped in during the post-economic crisis years has now left it. Gold's big post-crisis surge was driven in part by ETFs that allowed average investors to get in on gold's rise easily without having to physically hoard it. But today, the gold holdings of ETFs are lower than they were in 2010, before much of gold's crisis-driven ascent.